The Quick Read: Rarely. For most eligible veterans living in the home, VA cash-out is the stronger fit because it reaches more equity and carries no monthly mortgage insurance. FHA earns a look only when the VA path fails on something specific: residual income, the property, the net tangible benefit test, entitlement, or a non-veteran co-borrower. Everything here is subject to lender guidelines and full file review.
Why VA Usually Wins on Paper
The gap starts with leverage. The FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. HUD Mortgagee Letter 2019-11 is the rule that cut the FHA cash-out ceiling from 85% to 80% of adjusted value. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
VA is different. VA Circular 26-19-05 says VA will not guaranty a refinance when LTV exceeds 100% of reasonable value. Plenty of lenders set tighter caps than that, but a cap like that is a lender choice, not a VA rule. Either way, the VA ceiling sits well above FHA’s.
Mortgage insurance is the second gap. Across the wholesale programs Lendmire places FHA files with, the structure is the same every time: an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium between 0.15% and 0.75% of the balance. The annual piece depends on term, loan amount and LTV. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90%, it ends after eleven years. A cash-out at 80% LTV lands in the shorter bucket, but you still pay it monthly for years.
VA has no monthly mortgage insurance. It charges a one-time funding fee instead, and the fee is higher on a repeat use of the benefit. A veteran receiving VA compensation for a service-connected disability is generally exempt. Confirm exemption categories at va.gov, because they are narrower than people assume.
FHA vs VA Cash-Out Side by Side
| Factor | FHA cash-out | VA cash-out |
|---|---|---|
| Maximum LTV | 80% | Up to 100% of reasonable value |
| Monthly mortgage insurance | Yes, annual premium | None |
| Upfront charge | 1.75% premium | Funding fee unless exempt |
| Special test | None equivalent | Net tangible benefit, residual income |
| Occupancy history | 12 months owned and occupied | Primary residence |
| Credit approach | 580 decision score at the network | Set by the lender |
That table is why the default answer is VA. Now for the exceptions.
When FHA Can Actually Win
FHA wins when VA cannot get the file done, not because FHA is cheaper. The exceptions are narrow, and each one is a specific failure point.
The VA net tangible benefit test fails
Every VA cash-out must show a net tangible benefit. The same circular lists the qualifying tests, such as paying off an interim construction loan or finishing at or below 90% of reasonable value. If the refinance cannot clear one of them, VA will not guaranty it. FHA has no equivalent test.
Residual income comes up short
VA treats residual income as its own test, separate from debt-to-income. Compensating factors can help, but a lender may still decline. FHA does not run a residual income test. It looks at the 31/43 base ratio pair, and documented compensating factors can stretch that to 40/50 at the top tier. A veteran with a heavy household and a thin monthly cushion can pass FHA and fail VA.
The property fails VA’s minimum requirements
VA’s appraisal and minimum property requirements differ from FHA’s. A home that trips one set of condition standards may pass the other. Neither is easy, but the difference is real, and it sometimes decides the program.
Entitlement is tied up
A veteran with an earlier VA loan still outstanding may have reduced entitlement. That limits the guaranty and can change what the lender asks for. FHA does not touch entitlement at all, which is why some veterans keep it intact for a future purchase.
A non-veteran co-borrower complicates the file
A spouse or relative who is not a veteran changes how guaranty and underwriting work on a VA loan. Lender treatment varies, so it needs confirmation file by file. FHA allows a non-occupant co-borrower and does not care about veteran status.
(Lender overlays matter here too. Two lenders can look at the same veteran and give different answers on credit floors and caps.)
The Borrower Impact in Plain Terms
Picture a veteran with a modest balance, a mid-600s score and about 30% equity. Both programs are on the table.
On VA, the veteran could borrow against more of the equity and carry no monthly mortgage insurance. The funding fee gets financed, which raises the balance a bit. On FHA, the 80% ceiling leaves less cash on the table. The monthly annual premium adds to the payment, and the 1.75% upfront premium is financed too.
If that veteran clears the net tangible benefit test, residual income and the VA appraisal, VA is almost certainly the better pick. If one of those fails, FHA becomes the working path.
Now flip it. Say the veteran has plenty of equity, a thin residual income cushion and a home with condition issues. VA may stall at the appraisal or the residual income test. FHA might still go through with documented compensating factors. That is the textbook case for choosing FHA, and it is a fallback, not a preference.
The Case Where No Cash Comes Out
Some veterans in an FHA loan ask this question because they want out of monthly mortgage insurance, not because they need cash. VA calls the refinance of a non-VA loan a cash-out even when little or no cash is taken. A VA streamline (the IRRRL) cannot refinance a non-VA loan, so cash-out is the route into VA. Removing monthly mortgage insurance is one of the qualifying net tangible benefit options.
In that case, the comparison is not FHA cash-out against VA cash-out at all. It is VA against staying in the FHA loan you already have. If your current loan is FHA and you need no cash, the FHA Streamline is a separate product: no appraisal, limited credit review, a net tangible benefit, and the premium continues. Lendmire’s FHA cash-out refinance program page covers the FHA side of that comparison.
Common Mistakes
- Assuming every cash-out caps at 80%. That is true for FHA, not VA.
- Treating the funding fee as mortgage insurance. It is a one-time fee, not a monthly premium.
- Assuming 90% is the VA ceiling. The 90% LTV figure is one net tangible benefit test, not a cap.
- Assuming a disability rating waives the appraisal or the benefit test. It only waives the funding fee.
- Assuming the program floor is the lender floor. HUD’s lowest tier is below what the wholesale programs Lendmire works with accept. They start at a 580 decision score.
- Skipping the quote on both programs. The decision is a comparison, not a guess. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
For more background on the benefit test itself, the CFPB’s archived post on servicemember and veteran refinance protections explains the VA refinance test and the rate-drop test. It is archived, so treat it as a pointer rather than current guidance.
When Not to Cash Out at All
Sometimes the better move is no refinance. If the current loan is VA and the only goal is a lower payment, the VA streamline is built for that. If the need is a small amount of cash, a second lien may fit better. Lendmire’s piece Should a Veteran Ever Pick a VA Cash-Out Over a Second Lien? walks through that comparison.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Adjusted value: The appraised value HUD uses to set the FHA cash-out limit.
Net tangible benefit: The test VA applies to show a cash-out refinance helps the borrower in a defined way.
Residual income: The money left each month after major obligations, which VA tests separately from debt-to-income.
Entitlement: The amount of a veteran’s VA benefit available for the guaranty.
Funding fee: The one-time VA charge, which exempt borrowers do not pay.
Annual premium: FHA’s monthly mortgage insurance, charged on the balance.
Questions to Ask a Lender Before You Choose
1. Is my VA entitlement full, or tied up in another loan?
2. Does my file clear the net tangible benefit test and residual income?
3. What is your own LTV cap on VA cash-out?
4. What credit floor do you apply on each program?
5. Are there property condition items likely to fail either appraisal?
6. Does my non-veteran co-borrower change the file?
Frequently Asked Questions
Should a veteran ever choose FHA over VA?
Rarely, and only when VA fails on a specific point. Residual income, property condition, the net tangible benefit test, entitlement and a non-veteran co-borrower are the usual reasons. Without one of them, VA’s higher leverage and lack of monthly mortgage insurance usually win.
Does FHA cash-out give me less cash than VA?
Usually, yes. FHA stops at 80% LTV on a home owned and occupied for 12 months. VA can go up to 100% of reasonable value, though many lenders set a lower cap of their own.
Does a disability rating change the decision?
It removes the VA funding fee for exempt borrowers, which tilts the closing-cost comparison further toward VA. It does not waive the appraisal, residual income or the net tangible benefit test.
Can I refinance an FHA loan into VA?
Yes, through a VA cash-out refinance, even if you take little or no cash. A VA streamline cannot refinance a non-VA loan. Removing monthly mortgage insurance is one of the qualifying benefit options.
Does FHA have a credit advantage?
Often, but it varies by lender. The wholesale programs Lendmire places FHA loans with start at a 580 decision score, and VA publishes no minimum score, so each lender sets its own. Get quotes on both programs, because the same veteran can get different answers.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Program details are subject to lender guidelines, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
3. CFPB archive: servicemember and veteran refinance protections
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How to Document an Inherited Home for an FHA Cash-Out · Can You Get an FHA Cash-Out Refinance on a Texas Homestead? · Should a Condo Owner Choose FHA Cash-Out or Conventional?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.